MWP Act insurance trust

An ordinary life insurance payout, on the policyholder's death, becomes part of his estate, reachable by his creditors and divided under succession law. A policy written under the Married Women's Property Act, 1874 works differently.

Section 6 of the Act says a policy effected by a married man on his own life, expressed on its face to be for the benefit of his wife, or his wife and children, is deemed to be held in trust for them. As long as any object of that trust survives, the payout is not subject to the husband's control, his creditors, or his estate.

How the trust is created. The policyholder must expressly state on the face of the policy that it is for the benefit of his wife, or his wife and children, or any of them. That express statement is what triggers Section 6's automatic trust; no separate trust deed is needed.

What it protects against. Once created, the policy proceeds are shielded from three things: the husband's own control, his creditors, and his estate on death, meaning the money bypasses the ordinary succession process and the claims of anyone he owed money to.

Who receives the money. When the sum secured by the policy becomes payable, and no special trustees have been appointed, it must be paid to the Official Trustee of the State in which the insurance office is situated. The Official Trustee then holds and administers it under the trusts expressed in the policy.

Who the Act covers. It applies to any woman who, at the time of her marriage, professed the Hindu, Muhammadan, Buddhist, Sikh or Jain religion, or whose husband did. State governments may exempt specific communities from all or part of the Act.

Mr Bhatt takes a life policy of Rs 75,00,000, expressly stating on the policy that it is for the benefit of his wife and two children. He runs a business and, at the time of his death, owes creditors Rs 40,00,000.

Because the policy is written under Section 6 of the MWP Act, the entire Rs 75,00,000 is held in trust for his wife and children. His creditors have no claim on it, and it does not form part of his estate for succession purposes. If Mr Bhatt had not appointed a special trustee for the policy, the Rs 75,00,000 would be paid to the Official Trustee of the State, who would then hold and pass it on to the wife and children under the trust terms set out in the policy.

Compare an ordinary policy of the same amount, with no MWP Act declaration: on Mr Bhatt's death it would form part of his estate, and his Rs 40,00,000 of creditors could stake a claim against it before his family sees a rupee.

Chapter 14, section 14.4.4 (Married Women's Property Act, 1874), sets out Section 6 in full: the trust created by an MWP Act declaration, its immunity from creditors and the estate, and the fallback to the Official Trustee where no special trustee is named. Expect a question testing whether MWP Act policy proceeds can be attached by creditors, they cannot, and one on who receives the money absent a named trustee.

• The MWP Act protection requires an explicit statement on the face of the policy. An ordinary policy naming the wife merely as nominee does not get this protection automatically.
• Creditors of the husband cannot touch the proceeds, even though he paid every premium himself. This is the whole point of the Section 6 trust.
• Absent a named trustee, the Official Trustee of the State steps in. The money is not paid directly to the wife or children in that case; it passes through the Official Trustee first.
• The Act's coverage is religion-linked, Hindu, Muhammadan, Buddhist, Sikh, Jain, on either spouse's side at marriage, and states can exempt specific communities.